Monitor Consulting Inc. is in need of a Date Analytic Terminal for its financial analysts. The company has received three proposals, with related facts as follows:

Proposal A Proposal B Proposal C

Initial investment in equipment $90,000 $90,000 $90,000

Annual cash inflow increases in operations:

Year 1 80,000 45,000 90,000

Year 2 10,000 45,000 0

Year 3 45,000 45,000 0

Salvage value 0 0 0

Estimated life 3 yrs. 3 yrs. 1 yr.

The company uses straight-line depreciation for all capital assets. Ignore income taxes.

Required:

a. Compute the payback period, net present value, and accrual accounting rate of return using average annual income, for each proposal. Use a discount rate of 14 percent.

b. Rank each proposal 1, 2, and 3 using each method separately. Which proposal is best? Why?